KUCHING: Sarawak’s rising wave of property foreclosures is a structural-cyclical overlap driven by a severe house price-to-income mismatch and the delayed impact of national monetary tightening.
University of Technology Sarawak (UTS) School of Business and Management economic lecturer Dr Sim Chong Yang said the current distressed asset market is a compounding result of credit cycle corrections and regional income vulnerabilities unique to the state.
He revealed that as of the third quarter of 2025 (Q3 2025), Sarawak’s average house price stood at approximately RM540,000 — making it the third most expensive housing market in Malaysia, trailing only Kuala Lumpur and Selangor.
“This price-to-income mismatch is deeply concerning for a state where a significant portion of the workforce earns below RM3,000 per month.
“This mismatch has likely been masked by creative loan structuring and Employees Provident Fund (EPF) withdrawals for down payments. As those financial buffers are exhausted, default risk rises even without further deterioration in income,” he told Sarawak Tribune.
Sim noted that Bank Negara Malaysia’s (BNM) previous monetary tightening cycle, during which the Overnight Policy Rate (OPR) remained at 3.00 per cent by mid-2023 before being lowered to 2.75 per cent in July 2025, is only now being fully felt by borrowers.
“Borrowers on floating-rate loans typically absorb rate increases with a delay, as loan repayment schedules are recalculated.
“The foreclosures we see today are, in part, that lagged transmission finally arriving in the real economy,” he said.
For households that secured variable-rate mortgages during the pandemic’s historic low OPR of 1.75 per cent, the subsequent repricing translated to home loan rates averaging between 4.2 per cent and 4.4 per cent per annum for most of 2023-2025, significantly increasing monthly commitments without corresponding growth in household income.
While monetary policy acts as a macro driver, Sim argued that income compression is the more structurally significant catalyst within Sarawak.
He noted that the state’s labour market is heavily concentrated in capital-intensive industries like oil and gas, while domestic job growth remains primarily in low- and semi-skilled sectors where wage growth has historically been modest.
“When we layer post-pandemic inflationary pressures over this, the result is a structural compression of real disposable income.
“A household that could technically service its mortgage at OPR 3.00 per cent in 2022 may no longer be able to do so if its real purchasing power has declined, even if headline incomes have nominally risen,” he stressed.
Sim dismissed the notion that aggressive lending by banks is the primary cause, instead attributing the foreclosure surge to a household-side capacity breach.
Citing national data, he said Malaysia’s household debt reached RM1.65 trillion — a 46 per cent increase from RM1.13 trillion in 2021 — with mortgages accounting for 58 per cent to 60 per cent of the total.
Critically, BNM’s financial stability analysis previously highlighted that up to one-quarter of household borrowers carried a Debt Service Ratio (DSR) above 60 per cent — the standard credit risk ceiling for most lenders.
“Households in this segment have essentially no buffer margin.
“A single income shock, such as a retrenchment, medical expense or business downturn, is sufficient to trigger a loan default,” he observed.
He added that properties under RM300,000 often become unsustainable for lower- and middle-income families once hidden costs — such as legal fees, renovation, maintenance charges, sinking funds and daily commuting costs — are factored into the total cost of ownership.
Despite these pressures, Sim clarified that the data does not point to systemic structural distress or a market collapse, as national transaction volumes remain robust and Sarawak property prices continue to appreciate.
However, he said stakeholders should closely monitor three issues: limited affordable housing supply, rising unsold residential units in Sarawak, and the state’s exposure to global commodity price swings.
Moving forward, Sim emphasised that the foreclosure spike should serve as a clear public policy signal for structural intervention beyond mere interest rate adjustments.
“A more robust framework is needed, such as linking housing loan approval criteria to verifiable income trajectories, alongside a genuine scaling of affordable supply in the sub-RM300,000 range to address the underlying vulnerabilities in Sarawak’s housing market,” he added.
